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Tuesday, November 20, 2012

After the welfare state

Mutual benefit schemes

During the 19th and early 20th centuries they sprung up all over the country as a way of providing against hard times.

We often think that Lloyd George’s National Insurance Act introduced social cover for the first time in 1911; yet nine million people already belonged to voluntary insurance associations by then.

These were distinct from philanthropic organisations in one crucial respect: they were not run by one set of people in order to help another.

Rather, they were associations of individuals pledged to help each other when the need arose.

“Any assistance was not a matter of largesse but of entitlement, earned by the regular contributions paid into the common fund by every member and justified by the obligation to do the same for other members if hardship came their way,” writes Green.

But how is that different from paying taxes to the state to provide for you when you are ill or unemployed or old?

Is that not just a gigantic mutual aid society?

One important difference is that friendly societies engender fraternal ideas of reciprocity and entail mutual obligations between members and the organisation to which they belong.

This works much better on a smaller scale than a national one.

Politicians today like to remind people that they cannot just take from the welfare system without putting something back in or seeking a way out of their difficulties by taking a job.

But this message is simply ignored or never even heard by those it is aimed at.

Furthermore, mutualism encourages independence, responsibility and prudence rather than dependency, fecklessness and waste.

While a basic safety net would doubtless still be needed, mutualism could encompass everything from jobless benefits to elderly care.

A report from the RSA think tank today extols the virtues of collective pensions, where people save together rather than separately.

It opens with this startling figure: if a typical young Dutch person and his British counterpart both saved the same amount for their pension and retired on the same day and also died on the same day, the Dutch saver’s pension would be 50 per cent higher than the British one.

This is because pension saving in Holland is collective and the risk is shared, substantially reducing the administration costs, which are crippling UK schemes.

Such pensions make particular sense when more people are living far longer in retirement than was envisaged when Lloyd George or Beveridge were laying the foundations of the modern welfare state.

It is clear that public faith in the tax and spend policies followed by successive British governments since 1945 is near to collapse.

This may give governments the political cover for tougher action to restrict the growth of benefits.

But they need to think beyond the welfare state altogether, because it cannot last.